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Dismal Q2 evidence of deeper problems at Motorola?

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And the outcome of that schizophrenia could well be that Motorola relinquishes its number two handset position, in the interest of driving margins up and incorporating devices more tightly into an end-to -end convergence platform strategy.

That would be a brave decision for any CEO to make though, and Zander is not in the happy position of his Nokia counterpart, Olli-Pekka Kallasvuo, of being able to make radical changes from a position of strength. We still believe Zander has been what Motorola needed, identifying strengths buried deep in the company and highlighting them in order to effect a rapid initial turnaround. But the coincidence of his arrival and no-nonsense approach, with the success of the RAZR, did obscure just how massive a task he faced.

Beneath the shiny sales figures of the iconic flat device, the overall change in culture that was required, and the reorganization of the company’s manufacturing, sales and supply chain structures, all proceeded more slowly. Achieving these was never going to be an overnight job, and perhaps the scale of the task, and the likely ups and downs in carrying it out, were not sufficiently communicated to investors and customers, amid the euphoria of the RAZR era.

Here is one sign of hope in the fact that Motorola has finally replaced Ron Garriques as head of the handset division – with Stu Reed, who moves from being EVP of the supply chain organization. This at least reflects a prioritizing of practical and logistical concerns, and an attempt to find someone that can marry handset leadership with awareness of logistics, Nokia-style - although it could also be argued that Reed needed more time to complete changes in the supply chain, and that Motorola’s perception among investors could have been helped by a high profile hire into this critical job, perhaps from Nokia itself, as the US firm stands accused of being too Americacentric in its designs.

Over dependence on the RAZR was certainly a mistake. No manufacturer, not even Apple, can expect to create a killer device more than once every few years, and in the mean time, successful handset makers must spread their risks across a wide range of products that can be targeted to individual customer groups to maximize addressable market, while reusing as many components, reference platforms and R&D as possible. There has to be more focus not just on consumer marketing but also on the user interface, a combination of which has enabled Apple to storm the market with a 2G handset with dubious video credentials that most users remain convinced is a ‘multimedia phone’ to rival the N Series.

The other mistake, for which of course Zander must take some responsibility, was chasing market share with ultra-low cost handsets, without the cost and logistics structures to back this up. Even the hyper-efficient Finns were nervous of this sector, but Motorola leapt in, helping create the situation that the company is now in, with the handset unit no longer expected to make a profit for the year.

However, with the CFO and head of mobile devices departed, Zander should not be the next casualty, as some sources rumor is imminent. At this point Motorola needs a clear and detailed statement of direction for handsets and another one, with longer term focus for convergence, and these need to be sufficiently convincing to inspire shareholders again. But it also needs to accelerate its cost cutting and its efficiency drives and this needs stability and the man whose vision and style remain strong.

If Motorola chooses to keep a top two position in cellphones at the heart of its strategy, Zander needs a lieutenant who will understand how this is done logistically, and complement the CEO’s Sunderived focus on engineering excellence and feature sets. Some of the interesting acquisitions, such as TTPcom, need to be brought into more active play, and the company badly needs a software guru.

These positions need filling – but the CEO’s does not, at least not until Zander has been given a few more quarters to see the effect of his restructuring take (belated) effect, and to communicate a coherent vision at last of how Motorola can turn ‘seamless mobility’ from a marketing slogan into a real market that it can drive and shape.

Copyright © 2007, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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